Yesterday we had a nice argument regarding Factor 5's shutdown and whether the bad economy was to blame. Now, The Economist examines a "recession-proof" business and comes to a few conclusions of its own.
Its analysis draws on a few things we've already heard — how the console cycle drives sales, how the business stayed strong through the 2001 recession, how depressed people seek refuge in escapist entertainment. Some other interesting trends and pitfalls for publishers are identified too.
From the article:
Alex Evans of Media Molecule, the British studio behind “LittleBigPlanet”, a popular PlayStation 3 game, says people in the industry believe gaming has benefited from the rise of the “staycation”, or stay-at-home holiday. It is much cheaper to escape into the world of “Fable II” for a week than to go abroad.
I like it that a quote from the maker of a console exclusive is followed up with a reference to another exclusive on the competing console.
Regarding layoffs and losses:
It is too soon to say whether this signals a wider slowdown. It is not unusual for firms to lay people off at this stage of the console cycle, says Mr Harding-Rolls. At the start of the cycle, he says, publishers “go all out for investment, trying to produce ideas, then at a certain stage in the cycle they pare down.” EA has also suffered because it spread itself too thinly, making too many mediocre games. As retailers try to conserve cash and minimise inventories, many are restocking only the fastest-selling games.
And, how the Wii figures into all this:
EA also failed to anticipate the success of the Nintendo Wii ... Instead, EA and other large publishers have invested heavily in creating games for the Xbox 360 and PlayStation 3, both of which have high-definition graphics that increase the cost of designing games to $15m-25m or more. Failure to control development costs may also have contributed to the publishers’ woes.
But that doesn't mean Nintendo is either the savior, or immune:
The Wii’s great strength—its broad appeal—could turn into a weakness, because less committed gamers will be quicker to cut back. Ominously, in Japan, where the Wii and Nintendo’s hand-held console, the DS, have proved particularly popular with gaming neophytes, sales have slowed sharply since October.
Are Video Games Recession Proof? [The Economist]